Glencore-Teck Merger Proposal Faces Skepticism

Via AG Metal Miner

On April 3, multinational commodity trader and mining group Glencore announced its proposal for a merger with Canada’s Teck Resources. Estimates say the metal manufacturing merger could potentially create $4.25-5.25 billion of post-tax synergy value.

However, Vancouver-headquartered Teck announced its rejection of the offer on the same day. “The board of directors of Teck has received and unanimously rejected an unsolicited and opportunistic acquisition proposal from Glencore,” the response read. “(the proposal) would see that company acquire Teck and subsequently separate to create two businesses, which would expose Teck shareholders to thermal coal and oil trading.” 

Teck produces zinc and copper in concentrate as well as coking coal from assets in Canada. This also includes Chile and the United States. 

Glencore CEO Predicts “World Class” Metal Manufacturing Company

The proposed transaction submitted to Teck’s board on March 26, would see Glencore hold a 76% stake in the merger while Teck would hold 24%. Switzerland-based Glencore also suggested the creation of two standalone companies to focus on metals and coal, respectively.

The prospective metals company would carry the name GlenTeck and would be the “best metals company in the world, bar none,” Glencore CEO Gary Nagle said in a webcast. GlenTeck would combine Glencore’s and Teck’s minerals and metals assets, excluding coal. Glencore said the entity would also handle marketing, recycling, and distribution. 

“It will have (a) Tier I portfolio of copper assets and an unrivaled suite of growth opportunities that both Glencore and Tech bring into this new company,” Nagle said. “In addition to these copper opportunities, there is a terrific nickel business, a world-class zinc business, and the cobalt by-products that we get out of the Glencore copper business is significant.” Nagle went on to say that the latter would prove to be very helpful as the world decarbonizes.

Some Remain Skeptical of the Merger’s Potential

Some industry watchers expressed skepticism over a Glencore-Teck tie-up. For starters, the war in Ukraine caused benchmark gas prices to soar to unprecedented levels in 2023, which helped to boost thermal coal. One market observer told MetalMiner that Germany was examining the prospect of restarting coal plants in the country. This would ensure enough energy supply in the face of price volatility and supply disruptions.

Thermal coal supply was also tight due to other producers shutting down in previous years. The source noted that this may have pushed up prices, but that this type of coal will eventually wind down.

A merger between the two companies could also mean that some investors would have to pull out. As one analyst warned, their strategy or charter would mean they simply cannot be permitted to invest in thermal coal. Teck is an inherently low-carbon metals producer, that analyst added.

The market observer also saw no benefit to the metal manufacturing merger. “It wouldn’t bring more copper into the market. They’re just investing into M&A rather than developing greenfield projects,” they added.

Meanwhile, reports predict that the coming copper deficit could outstrip demand by 6 million tons by 2030. The deficit for 2022 is about 100,000 metric tons. Teck produced 270,000 metric tons of copper in 2022 from its three operations in South America and Canada. The company also reported that the total contained copper in proven and probable reserves totals 33 million metric tons.

Teck can also produce 295,000 metric tons of refined zinc annually at its Trail lead and zinc smelter in British Columbia. It does this using zinc in concentrate from its Red Dog mine in Alaska. 

Mechanics of a Potential Glencore-Teck Merger

The proposed merger would take place partly via a combination exchange ratio of 7.78 of its shares per Teck B share. This represents a valuation premium of 23% based on several specific share prices in March for the two companies. 

Glencore also proposed a combination exchange ratio of 12.73 of its shares per preferred Teck A share as part of the deal. The group noted that this represents an average 39.5% valuation premium, also based on specific share prices for both companies in March.

Nagle said that the new GlenTeck company would have a listing on the London Stock Exchange and a secondary listing in Toronto (TSX) and Johannesburg (JSE). He added that the coal would also have secondary listings on TSX and JSE, though its primary listing would be on the New York Stock Exchange. Nagle also did not believe there would be any major anti-trust impediments to implementing this transaction.

By Christopher Rivituso

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